“Corporate Reform” or Failed, Desperate Corporate Management?

Posted on July 26, 2013

I suspect there are a lot of readers of my blog and twitter followers who frequently use the phrase “corporate reform” to characterize the current heavily privately financed movement to push specific “reforms” to public education systems. My readers may not have noticed, but I tend not to use this phrase. I have a few reasons for my avoidance of this term. First, it’s my impression that the term necessarily implies corporate to mean “evil.” That a corporate mindset – meaning private sector for profit business mindset can do no good. I’m cynical, but not that cynical. I actually do think there are good, for profit corporations out there. Perhaps they are dwindling in their numbers and power base, but I still think they exist.

But here are my main reasons why I don’t roll with the whole “corporate reform” lingo. That the education reforms being pushed – that are cast as “corporate reforms” – a) really aren’t that common in private sector for profit business and b) they suck – even in (perhaps especially in) private for profit business. The supposed “corporate reforms” being advocated for the takeover of public education are reasonably well understood among analysts of private for profit business to be failed models. Models of desperation forcibly implemented by CEOs of businesses in decline – CEOs who often are on the verge of their own ouster due to their persistent failures of leadership. Thus, their solution – their secret sauce – blame the employees – force groups of employees to beat the hell out of each other – distracting from the failures of leadership. Sound familiar? Well, here are two vivid cases that should sound familiar.

One popular component of what is referred to as the corporate reform movement in public education is the replacement of traditional public districts with a portfolio of public and private providers of schooling options who will compete to attract students and be accountable for posting good test scores. Thus, all boats will rise as a function of competitive pressures – and no child will be left without great schooling alternatives. A wonderful replacement for our current failing urban schools, right? Well, as I’ve explained previously, the system we’ve put in place to implement and evaluate schools under such models doesn’t actually work this way. Large segments of students go un-served entirely, as in New Orleans. Schools aggressively cream skim each other’s desired students in order to post good numbers, and shed masses of students that don’t aid them in the rat-race. The model has evolved over time from portfolio to parasitic, or perhaps even cannibalistic.

But hey, this stuff works great in the private sector, so why shouldn’t it work well for schools?

Not so fast. One of the most apt comparisons might be the recent follies of Sears. The title of this article says it all:

Ya’ see, Eddie Lampert figured, like “ed reformers” that if we could simply capitalize on the inherent greed and selfishness of individuals (“rational” behavior as described in econ literature) in the corporate workforce, we can get them to work harder and harder to out-compete each other to achieve greater financial reward, and the obvious result will be greater profitability for the company as a whole? Right. The way to do this would be to break Sears into several parts, and make those parts compete with each other to post good measurable outcomes. As described in the article:

Although Lampert is notoriously media-averse, he agreed to answer questions about Sears’s organizational model via e-mail. “Decentralized systems and structures work better than centralized ones because they produce better information over time,” Lampert writes. “The downside is that, to some, it appears messier than centralized systems.” Lampert adds that the structure enables him to evaluate the individual parts of Sears, so he can collect “significantly better information and drive decision-making and accountability at a more appropriate level.”

Lampert created the model because he wanted deeper data, which he could use to analyze the company’s assets. It’s why he hired Paul DePodesta, the Harvard-educated statistician immortalized by Michael Lewis in his book Moneyball: The Art of Winning an Unfair Game, to join Sears’s board. He wanted to use nontraditional metrics to gain an edge, like DePodesta did for the Oakland Athletics in Moneyball and is trying to repeat in his current job with the New York Mets. Only so far, Lampert’s experiment resembles a different book: The Hunger Games.

As some employees had feared, individual business units started to focus solely on their own profitability and stopped caring about the welfare of the company as a whole. According to several former executives, the apparel division cut back on labor to save money, knowing that floor salesmen in other departments would inevitably pick up the slack. Turf wars sprang up over store displays. No one was willing to make sacrifices in pricing to boost store traffic.

Further:

Former Sears executives say their biggest objection to Lampert’s model is that it discourages cooperation. “Organizations need a holistic strategy,” says Erik Rosenstrauch, former head of Sears’s DieHard unit, who is now CEO of Fuel Partnerships, a retail marketing agency. As the business unit leaders pursued individual profits, rivalries broke out. Former executives say they began to bring laptops with screen protectors to meetings so their colleagues couldn’t see what they were doing.

Appliance maker Kenmore is a widely recognized brand sold exclusively at Sears. Under SOAR, the appliances unit had to pay fees to the Kenmore unit. Because the appliances unit could make more money selling devices manufactured by outside brands, such as LG Electronics, it began giving Kenmore’s rivals more prominent placement in stores. A similar problem arose when Craftsman, Sears’s beloved tool brand, considered selling a tool with a battery made by DieHard, also owned by Sears. Craftsman didn’t want to pay extra royalties to DieHard, so the idea was quashed.

And here are some more detailed examples:

The bloodiest battles took place in the marketing meetings, where different units sent their CMOs to fight for space in the weekly circular. These sessions would often degenerate into screaming matches. Marketing chiefs would argue to the point of exhaustion. The result, former executives say, was a “Frankenstein” circular with incoherent product combinations (think screwdrivers being advertised next to lingerie).

Eventually Lampert’s advisory committee instituted a bidding system, forcing the units to pay for space in the circular. This eliminated some of the infighting but created a new problem: The wealthier business units, such as appliances, could purchase more space. Two former business unit heads recall how, for the 2011 Mother’s Day circular, the sporting-goods unit purchased space on the cover for a product called a Doodle Bug minibike, popular with young boys.

The details in this article are wonderfully applicable to portfolio management of urban schooling. Please read the rest of it, and ponder it in relation to some of my other posts, like this, or this.

So, with respect to portfolio, I mean parasitic… or perhaps cannibalistic management strategies, I’ll go all reformy for a moment and adopt the phrase “sector agnosticism.” This strategy, often cast as a major element of “corporate reform,” is a failed strategy of the corporate sector and equally toxic in public education. Indeed, the foolishness behind this approach knows no sector boundaries.

Note: interestingly, the article points out that one possible benefit of Lampert’s strategy is that if Sears were to fail so miserably that they eventually had to start selling off their parts, the decentralization of the company and establishment of independent boards for each unit facilitates that process.

IBM’s “Bad Employee” Problem and the Solution that Wasn’t

We all now know that the reason for our failing public education system is “bad teachers.” Teachers with fat pensions, big salaries and who are totally unaccountable for anything, really – especially for helping their students actually get those good test scores that pave the pathway to their future. And that the path to fixing our public education woes is to fire our way to Finland, and to use, really any variant, good bad or indifferent, of student test score growth to sort out the good teachers from bad and to ease the process of getting rid of the bad and incentivizing the good. Obviously, this is how any good private sector business works and so too, it should in schools. After all, we all know that teaching is the only profession where individuals aren’t paid based on their performance, or more specifically, based on a very noisy (and statistically biased) regression estimate of math and reading questions answered by 8 to 13 year old children who happen to spend a few hours of weekdays for 10 months with them. Right?

Let’s go back 20+ years now, to what b-school types actually seem to refer to as a “John Akers moment.” And just what is a “John Akers moment” you ask? Well, John Akers was CEO of a declining IBM in the early 1990s. The simple response by Akers was to blame the employees, by constructing a new, toxic, employee evaluation scheme. Here’s how that eval scheme was described at the time:

To identify the best and worst employees, every manager at IBM, beginning this year, will use a seven-page annual evaluation to rate employees on a scale of 1 to 4, with 10 percent receiving the top and bottom grades, and the rest getting 2s and 3s.

The managers will also rank employees by their relative contributions to the business. People who get high rankings are eligible for bonuses, while workers with the lowest grades will be given three months to improve performance or lose their jobs.

IBM says it is not abandoning its no-layoff policy. Rather, in trying to raise performance standards, it is retaining only the best people. “In the competitive world we`re in, we can`t drag along folks who aren`t“ making the grade, said Walton E. Burdick, senior vice president of personnel.

What do IBM employees think? “There are feelings that (IBM chief executive John) Akers has been screwing up, and now he`s turning around and trying to blame others,“ said a 10-year IBM employee who asked not to be named.

The employee`s story shows what a slippery slope IBM may be on. She said she received the second-highest rating — a 2, on what had been a 1-to-5 scale — for most of her career. A few years ago, she got a new boss and her grade slipped to a 3. She thinks the downgrading has more to do with her request for a job transfer than any change in her performance. Now, she says, she is in danger of a 4.

But some other brilliant leaders in the tech industry, most notably Microsoft, did latch on to the IBM strategy… as a step toward their own long run stagnation. Heck, why would Microsoft ever consider veering from its path of simply copying and implementing even less efficiently, what others have already done? It’s gotten them this far.

Most notably, this article explains that one of Microsoft’s greatest barriers to succeeding in their most recent (desperate) attempts to restructure, is the company’s toxic employee evaluation scheme, as described previously in Vanity Fair:

Major restructuring at any company is almost always traumatic, but Microsoft’s ultra-competitive corporate culture will amplify the impact.

Last year a Vanity Fair magazine story described Microsoft’s debilitating employee ranking system, in which team leaders are forced to hand out reviews based on a quota system. So at least one member of each group will get a bad review, no matter how well they perform.

That system has fostered a lack of cooperation and vicious office politics, a malady that is said to run through the entire company at all levels.

Put simply, this idea that one can raise the overall quality of the company – even improve its productivity and profitability – by rating, degrading, and dismissing “bad techies” – is simply unfounded.

Like the portfolio mismanagement above, the toxicity of this idea knows no sector boundaries. It’s as bad in big, private sector business as it is for schools.

So you see, “Corporate Reform” as currently being pitched for schools is, in fact, FAILED corporate management strategy – often hastily adopted in a moment of leadership desperation – and rarely if ever achieving the desired turn around.

It’s been a massively successful strategy if the goal is to squeeze labor with increased job insecurity, which it is. Likewise, education “reform” has been very successful in achieving its main goals: bust teachers’ unions, eliminate job security, decrease pay and benefits, increase hours. The next step is to outsource. Just like IBM.

Unrelated question, one I have no capability to find the answer to. Has anyone compiled the numbers on the administrative costs of charter schools? Part of what irks me about them is that we are forced to pay for a parallel bureaucracy, one that in some cases is more expensive while managing fewer schools and not managing the full array of school operations such as maintenance etc. ie. when buildings are leased. The obvious bonus insult is that charters are being paid to manage schools that were once being managed by the cities in question with no additional senior staff overhead. I would love to see a breakdown of how much a city like Chicago, LA or NYC pays out for the duplicate positions of CEO and other top level staff that also exist to manage the regular public schools.

1) So many of the reformy folks who push for school systems to adopt “corporate” practices seem to think that all businesses run on pretty much the same principals. The truth is that there is a wide variety of models, practices, and philosophies, and often businesses that eschew competition among their employees and divisions are among the most profitable and successful. For example:

2) To extend your metaphor further, Bruce: Lampert strikes me as the sort of CEO that would be a member of Jeb Bush’s “Chiefs For Change” or a graduate of the Broad “Academy” were he working in education. Brilliant as he may be in the world of financial instruments, he came into Sears with no practical knowledge or experience in actually running a retailing operation. He was awarded his position not because he had a demonstrated record of success in Sears’s sector, but because he had a knack for picking the right securities at the right time. There’s simply no reason to believe that the skills required for one job are the same as the skills required in the other.

Too many of our large district superintendents and state level commissioners are coming into their positions from that same position of inexperience within the relevant field. Joel Klein, Michelle Rhee, Chris Cerf, Arne Duncan, Paul Vallas, Janet Barresi, Tony Bennett, Deborah Gist, and so on… you could argue that they had demonstrated competence in some other areas (in most cases, I wouldn’t), but they hadn’t shown they could run a school system before they were offered their jobs.

I’m not saying that every education leader has to follow the same career path, in the same way I wouldn’t argue every corporate CEO should. I certainly don’t think past experience is a guarantee of success. But is it really so absurd to think that people who are put in charge of large organizations – be they corporations or school systems – would have a much better chance of success if their resumes showed prior accomplishments within their field?

An interesting project would be to explore the backgrounds of many of the pundits who so vocally push these strategies on the pretense that they are dominant, successful private sector strategies. I suspect, because I am familiar with many of the leading characters in this mix, that few have worked in either traditional public districts or successful private industry (besides those political appointees you mention, who were granted control over public districts but possessed neither background in successful private sector business leadership or prior public district leadership). Most of the reformy pundits seem to be either career politicians, or naive DC beltway think tankers and bloggers, who lack not only experiential knowledge of either sector (only political system and soft money echo chamber work) and lack any deep academic knowledge of either sector. Indeed, some spun college projects into nationally prominent soft money, non-profit service organizations… and in those cases, I suspect that they also don’t apply these failed management strategies in their own organizations. Do DC think tanks really shed the bottom 5% of “thinkers.” I think not. Does TFA really rank & dismiss their own employees and replace them with college interns? Likely not.

I’ve been pointing out for a long time now that truly innovative business organizations had already started, by the end of the last millennium, to move beyond the regressive business models of the early 1900s, but there remains a kind of grabitational force that dominates all the truly massive transnational corporations and that constantly pulls them down to their archaic fallback positions.

There is some ambiguity about the term “corporate reform”, which might as well have implied the reform of corporations — we wish❢ — but no one really believes there’s much chance of that happening.

If one wishes to stress the dynamics involved, one may use terms like corporate raiding or hostile corporate takeover of public education. The terms commodification and commercialization highlight other features of the process.

But pointing to the corporate model of governance, as opposed to the democratic model of governance, is very apt, and I think it gets to the heart of the matter.

I don’t know if your post really hits the point, I suppose it does semantically… but from a profit-motive perspective, the question is not really whether these reforms work to educate children, its whether they create markets that are profitable.

The question is whether the corporate pushed deforms that do lead to privatization – increased testing, charter operations, curriculum resets, etc. – create significant profits and/or open up markets for private interests.

Indeed one might suggest that since it is relatively well understood that the management approaches addressed above are ill-conceived at least from the standpoint of actually running either a productive school or business, that anyone pitching them must have a different motive, such as setting the stage for selling off the parts.